Question: 1. Explain how the instrumental variables method corrects for endogeneity. 2. Explain what characteristics a good instrument should have to deal with endogeneity. 3. Discuss

1. Explain how the instrumental variables method corrects for endogeneity.

2. Explain what characteristics a good instrument should have to deal with endogeneity.

3. Discuss what sort of tests one needs to perform to empirically assess the validity of the instruments used.

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